BIMB’s 1QFY24 net profit (+9% YoY) was within expectations with past investments and initiatives looking to possibly improve book quality and market share in the longer term. We tweak our FY24F/FY25F earnings by - 2%/-1% but await further updates from an upcoming results’ briefing as we get clarity on possible changes to group targets. Maintain our UNDERPERFORM call and GGM-derived PBV TP of RM2.25.

Within expectations. BIMB’s 1QFY24 net profit of RM129.2m came in as expected, making up 22% of both our full-year forecast and consensus full- year estimates. No dividend was declared this quarter, also as expected.

YoY, 1QFY24 net Islamic revenue remained flattish from a tight mix of profit spreads, in spite of a 2% financing growth. That said, investment results were more favourable (+8%) which led to a total income gain of 2%. While cost- income ratio rose to 64.7% (+1.5 ppts) from higher personnel and IT spend, lower provisions during the period (credit cost at 25 bps, -13 bps) ultimately supported a 1QFY24 net earnings growth of 9%.

QoQ, total income fell by 3% as net Islamic income saw a correction in NIMs (2.76%, -14 bps) while investment returns eased. Similarly, credit cost also normalised to 25 bps (+19 bps) following the previous quarter’s heavier writebacks. All in, this led to QoQ earnings to decrease by 18%.

Outlook. Its moderate loans growth may be in line with the group’s initial stance to not undertake less profitable non-retail accounts which have higher funding costs attached. We observed that the sustenance of below industry gross impaired loans (0.95% vs industry’s 1.6%) could also reflect greater prudence towards the onboarding of new customers. That said, while the group previously stated on its roll-out of a new mobile banking platform (likely the cause of the higher IT expenses) to capture a wider retail presence, we believe it may only see fruition in the longer-term as the competitive landscape continues to be highly competitive.

Forecasts. Post results, we adjust our FY24F/FY25F earnings by -2%/-1% following our model updates. We may incorporate further adjustments pending the upcoming briefing on 23 May 2024.

Valuations. We maintain our TP of RM2.25 based on an unchanged GGM- derived FY25F PBV of 0.64x (COE: 10.5%, TG: 3.5%, ROE: 8%) on a FY25F BVPS of RM3.46. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4).

Investment case. While the stock may see interest from shariah-compliant investors paired by commendable dividend yields of c.7%, we believe it may be excessively valued at current price points given its moderate earnings growth prospects in addition to its lower ROEs as compared to its peers’ average (c.10%). Maintain UNDERPERFORM.

Risks to our call include: (i) higher-than-expected margin expansion, (ii) higher- than-expected loans growth, (iii) better-than-expected asset quality, (iv) surge in capital market activities, (v) favourable currency fluctuations, and (vi) changes to OPR.

Source: Kenanga Research - 23 May 2024